From “So why aren’t exporters in pain?” by UBS Global Emerging Markets Economist Jonathan Anderson, April 14:
On the one hand, we have endless talk in the press and the wave of complaints [of traditional Chinese exporters being in trouble] coming from firms on the ground, and on the other virtually no indication of trouble at the macro level. In our view, there’s a simple explanation. As we highlighted many times in previous research, all the signs of growing pressures are in place – the wage costs, the currency strengthening, the global slowdown – but China is still in the very early stages of the inevitable adjustment process. And international experience suggests that this is a process measured in years (if not five-year intervals) rather than months. So while mainland exporters can’t raise prices and pass on costs forever, and we have little doubt that traditional sectors will lose competitiveness to a much greater degree down the road, it’s far too early to talk about pending disaster.
From “Cost normalization,” by Minggao Shen and Ken Peng, Citigroup Global Markets, April 15:
Recently escalating production costs in China could have signaled the beginning of cost normalization – pulling distorted prices and costs of key inputs back to the market level. Though likely irreversible, this process would be gradual, probably taking a decade or even longer to accomplish … However, China’s comparative advantages in manufacturing will not disappear even when key input prices are determined by the market. The still relatively low labor costs, the economies of scale due to extended production chains and the potential consumer market will likely help maintain the competitiveness of Chinese goods for a long time. [But] cost normalization will continuously pressure profit margins of manufacturers. Industrial consolidation through mergers and acquisitions will probably become the main theme of investment.
From “Chinese property developers,” by Senior Credit Officer Peter Choy and Analyst Kaven Tsang, Moody’s Investors Service, April 16:
Moody’s has a negative outlook for China’s property development sector as tighter credit conditions are likely to prevail over the next 12-18 months and, at the same time, business prospects have become much more challenging. The overall sector has negative prospects in the near and medium term because Chinese developers face challenges in funding their capital expenditure with domestic and overseas funds, while also facing a more problematic sales environment … [Developers] that fail to maintain strict financial discipline and, in particular, disciplined liquidity profiles, risk downward pressure on their ratings … Government policies are also restricting domestic bank credit and increasing lending costs for developers’ prospective customers – predominantly the buyers of residential housing.